Lloyds profits up 4 per cent but nearly half still being used to pay cost of past scandals

The results published today are the first since the government fully returned the bank it bailed out at the height of the financial crisis, at a cost of £20 billion to the UK taxpayer, to private ownership.

The Edinburgh-based group, which includes Bank of Scotland, said £700 million of the compensation provisions being made will cover payment protection insurance (PPI) claims, which now puts Lloyds’ total PPI compensation costs at £18 billion.

The rest of today’s provision (£283 million) will be used to repay about 590,000 mortgage customers who were charged from 2009 to 2016 for going into arrears.

The Financial Conduct Authority (FCA), which had been investigating the issue, said Lloyds had acknowledged that when mortgage customers fell into arrears they did not always do enough to understand customers’ circumstances to be confident that their arrears payment plans were affordable and sustainable.

Lloyds’ commitment means it will refund all fees charged to customers for arrears management and broken payment arrangements from 1 January 2009 to January 2016.

For those mortgage customers who entered its litigation process during this period, this will include any litigation fees that were applied unfairly.

Lloyds will also offer payments for potential distress and inconvenience, and consequential loss which customers may have experienced as a result of not being able to keep up with unsustainable repayment plans.

Jonathan Davidson, executive director of supervision- retail and authorisations at the FCA, said: “Ensuring fair treatment of customers, especially those in financial difficulties or who are vulnerable, is a key priority for the FCA. We continue to engage with Lloyds as it works to improve the way it treats customers in arrears.”